Class Test-2

Derivative and Risk Management

Date: 16 Apr 2024
Max Marks: 30
Attempts any three.

Q1. Three put options on a stock have the same expiration date and strike prices of ₹ 5500, ₹
6000, and ₹ 6500. The market prices are ₹ 230, ₹ 250, and ₹ 280, respectively. Explain how
a butterfly spread can be created. Show graphically and construct a table depicting the profit
from the strategy. For what range of stock prices would the butterfly spread lead to a loss and
by what amount?

Q2. What are the minimum and maximum bounds on the prices of call & put option?
Explain.

Q3. A call with a strike price of INR 920 costs INR 140. A put with the same strike price and
expiration date cost INR 120. Construct a table that shows the profit from straddle. For what
range of stock price would the straddle lead to loss?

Q4. A stock is trading at 500. A call option on the same with three months to maturity and an
exercise price of 550 is selling for 12. What should the price of a put option on the stock with
three months to expiry and an exercise price of 550 be? Assume a risk-free interest rate at
8%.

Q5. At NSE, a share of Reliance is trading at 2100, a call option with a strike of 2200 with
three months to expiry is trading at 26 while a put option with the same strike is valued at
110. Draw a payoff diagram for a long position in the stock, a short position in the stock, a
call option and a put option.